Shares

Shares (also known as 'stocks' or 'equities') are your ticket to the game of capitalism. Think of a big, successful company as a giant pizza. You can't buy the whole thing, but you can buy a slice. A share is exactly that: a tiny, single slice of ownership in a public company. When you buy a share of, say, Apple or Coca-Cola, you officially become a part-owner, or 'shareholder'. This ownership stake entitles you to a portion of the company's profits and a claim on its assets. As a shareholder, you can make money in two primary ways. First, if the company does well and its value increases, the price of your share can go up, allowing you to sell it for more than you paid – this is called a 'capital gain'. Second, the company might decide to share its profits directly with you by paying out 'dividends'. For a value investor, a share is not just a blinking number on a screen; it's a tangible piece of a real business.

Just like ice cream, shares come in different flavors. The two most popular are common and preferred, and knowing the difference is crucial.

This is the vanilla of the share world – the most widespread and what people usually mean when they talk about “buying stocks.” Owning a common share is like being a citizen of the company.

• You Get a Vote: Common shareholders have voting rights. This means you get a say in major company decisions, like electing the 'board of directors', who are responsible for overseeing the company's management. It's corporate democracy in action!
• Potential for Growth: Your fortune is directly tied to the company's success. If the company hits a home run, the value of your common shares can soar. Dividends are a possibility but are not guaranteed; the company decides whether to pay them or reinvest the profits back into the business for more growth.
• Last in Line: There's a catch. If the company goes bankrupt and its assets are sold off ('liquidation'), common shareholders are the very last to get paid, after creditors, bondholders, and preferred shareholders. It's a higher-risk, higher-potential-reward position.

Preferred shares are a bit of a hybrid, mixing features of shares with the characteristics of 'bonds'. They are less common for the average investor but are important to understand.

• No Vote, More Certainty: Typically, preferred shareholders don't get voting rights. In exchange for giving up their say, they get a more predictable income stream.
• Fixed Dividends: Preferred shares usually pay a fixed dividend, much like a bond pays interest. What's more, the company must pay these dividends to preferred shareholders before any dividends can be paid to common shareholders.
• First Dibs: In a liquidation scenario, preferred shareholders get paid back before common shareholders. This makes them a less risky investment than common shares, but they also tend to have less potential for spectacular price growth.

Ever wonder why companies bother selling off pieces of themselves? The answer is simple: to raise money. Imagine you have a brilliant lemonade stand that's so popular, there's a line around the block. You want to expand by opening a second stand, but you don't have the cash. So, you decide to sell 50% of your business to friends and family. They give you money, and you give them a stake in the future profits. Public companies do the same thing on a massive scale. When a private company wants to raise a large amount of capital for expansion, research, or paying off debt, it can “go public” through an 'Initial Public Offering' (IPO). This is the first time it offers its shares for sale to the general public on a stock exchange. By selling these ownership slices, the company gets a huge injection of cash to fuel its growth, and investors get a chance to share in that future success.

For followers of 'Warren Buffett' and his mentor Benjamin Graham, the approach to shares is fundamentally different from that of a speculator.

The most important lesson in value investing is this: When you buy a share, you are buying a piece of a business. You are not buying a lottery ticket or a three-letter symbol that wiggles on a screen. Your goal is to become a part-owner in a wonderful business that you understand. This mindset forces you to ask the right questions: Is this company profitable? Does it have a strong competitive advantage? Is the management team honest and capable? You're thinking like a business owner, not a gambler.

A value investor's job is to calculate what that piece of the business is really worth – its 'intrinsic value'. The market price of a share can swing wildly based on news, fear, and greed, but the intrinsic value of the underlying business is far more stable. The secret to successful investing is to buy a share only when its market price is significantly below your estimate of its intrinsic value. This discount is your 'margin of safety', a cushion that protects you from bad luck or errors in judgment. It's like finding a brand-new, high-quality winter coat on sale for half price in the middle of summer. You're buying quality at a bargain price.

• Shares = Ownership: Don't forget that you're buying a small piece of a real company, with a claim on its future profits.
• Know Your Flavor: Common shares offer voting rights and high growth potential but come with more risk. Preferred shares offer fixed dividends and more safety but less upside.
• Think Like a Business Owner: Investigate a company before you buy its shares. Don't just follow the crowd or chase hot tips.
• Price is What You Pay, Value is What You Get: The ultimate goal is to buy a share in a great business for a price that is less than its actual worth.